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Tate & Lyle hit by headwinds

RESULTS: Tate & Lyle may have been hit by various headwinds, but longer-term prospects at the high-margin speciality foods business justifies further share price upside
November 8, 2012

Tate & Lyle (TATE) produced a lacklustre performance compared with last year's robust growth, but it shouldn't detract from the food producer's longer-term prospects. The reported numbers also conceal what was a solid operational performance. Adjust for a net £2m of one-off costs and last year's £66m credit - related to restarting production at a plant in Alabama - and Tate & Lyle's pre-tax profit edged up 2 per cent to £179m.

IC TIP: Buy at 722.5p

The group's lower-margin bulk ingredients operation, accounting for over 70 per cent of sales, grew operating profit 7 per cent to £101m. Corn sweetener volumes increased 2 per cent in North America, but slipped 7 per cent in Europe. That was due to lower quotas in non-EU markets and a strike in Turkey. Moreover, although the US drought has hit corn quality and boosted corn prices, analysts at Citi think the group is "well-placed to pass on price increases".

At the speciality food unit, which makes such products as sweetener Splenda, operating profit slipped 7 per cent to £108m. Good growth in the US was partially offset by soft European conditions and performance suffered from a rise in costs associated with restarting production at the Alabama plant.

Canaccord Genuity expects full-year adjusted EPS of 59.6p (56.4p in 2012).

TATE & LYLE (TATE)

ORD PRICE:722.5pMARKET VALUE:£3.4bn
TOUCH:721.5-722.5p12-MONTH HIGH:747pLOW: 628p
DIVIDEND YIELD:3.5%PE RATIO:13
NET ASSET VALUE:210p*NET DEBT:40%

Half-year to 30 SepTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20111.5424139.57.10
20121.6317230.87.40
% change+6-29-22+4

Ex-div: 28 Nov

Payment: 4 Jan

*Includes intangible assets of £329m, or 71p a share